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 Sam brings over 15 years experience of equities, forex, options, and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.
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Portfolio Insurance
At Online Trading Academy, we suggested a while ago that the economy is in big trouble and called for a bear market. John O'Donnell was preaching this message to the world in 2005. He was also screaming to the world that they should short the home builders right at the peak of the housing bubble, long before the pundits took any positions. Mr. O'Donnell was buying gold at $250 an ounce back in 2000. In letters dating back on our website, we timed the move lower in the U.S. Equity markets with precision. I say all this not to impress you but to impress upon you the importance of market timing. There are two reasons for this. First, big picture market timing allows you to take advantage of low risk/very high reward trading opportunities in markets and profit. Second, it is vital if you are to protect gains in your portfolio, 401k, IRA, and so on. While we teach both points at Online Trading Academy, it is the latter that is the focus on this short piece.
A year ago when I and others were suggesting that people consider protecting their stock market gains, as there was growing risk in the market, no one wanted to listen and buy insurance. Now that the car accident has happened, everyone is sending emails asking how they can protect themselves. Well, buying car insurance after the accident is never cheap but I will try and lay out two policies for you that may help protect you against further downside prices in the U.S.
In our options course, we spend time on portfolio insurance. What we do is show people how and WHEN to buy long term puts on the S&P to protect your portfolio against a decline in the stock market. Why did I write the word WHEN in caps? Because how to buy puts is something you can learn to do on the internet for free. When to buy puts at the right time, when they are cheap and about to become expensive, is far and away the most important thing that we focus on most here at Online Trading Academy. For those who acted on our warnings many months ago, they bought VERY cheap puts that are now very expensive. Any equity positions they are holding in their retirement account, 401k, IRA, Mutual Fund, etc, are down significantly with the market losses. However, gains in the puts are likely offsetting some or all of these losses. This is what we call "hedging" risk. For those who have not taken action and are concerned about further erosion of the portion of your retirement account tied to the U.S. equity markets, here is an opportunity to consider.
Above is a chart of the QQQQ, the ETF (exchange traded fund) for the NASDAQ. Not far above current price is a resistance (supply) level as seen here on the daily chart. If and when price revisits this level, the NASDAQ is likely to turn lower for a sustained move down as there is plenty of room for the market to fall. Therefore, one might consider buying longer term PUT options on the stock market at that level. At resistance (supply), puts are relatively cheap but about to become expensive. One might consider buying puts a year out with a delta of .7 or better. The level in the QQQQ is $47.00 - $48.00 as seen on the chart. There are other ways to protect yourself with options so either email me or come take an options class at Online Trading Academy - Options Trader 1 and Options Trader 2.
Another way to protect yourself from a substantial downside move in the stock market is with futures. For example, if you own stocks that are in the S&P 500 and you think the S&P is going to fall and you want to protect against that risk, you can simply short the S&P. If the market falls, your portfolio will decline as well but your gain in your short position in the S&P will offset some or all of that loss, depending on what you want to do. I have been short the S&P futures for this very reason. Timing here again is EVERYTHING. You must short the stock market or buy puts when the stock market is at a price level where supply exceeds demand. These demand (support) and supply (resistance) levels are something we spend a large amount of time on in all our courses as it is the key in determining price direction. Determining price direction is the key to low risk/high reward market speculation in any and all markets. For more information on quantifying supply and demand, please see some of my prior articles for free on the website. To own the knowledge needed to quantify support and resistance in any market, join us for a course.
Have a great day.
- Sam Seiden, sseiden@tradingacademy.com
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Jennifer Perrier has been the webmaster and newsletter editor for Online Trading Academy since the company formed. She is excited about our newest newsletter format and of course the look of the new web site! She hopes you get as much out of the education on our site and our newsletters as possible. Tell all your friends! 
In Online Trading Academy's new XLT-Broad Market Analysis with Fernando Gonzalez, our students embark on a minimum 3-month journey to discover the beauty of the Markets. In so doing, we establish the foundation needed by our students to grasp the enormous complexity and vastness, but spectacular order by which the market operates on a day-to-day basis. Our ultimate goal: to equip our students with the complete and unabbreviated training necessary to survive, and ultimately dominate competing traders for many years ahead. XLT-Broad Market Analysis is designed by Fernando to be the ultimate Trading Education experience. It is the result of over 10 years of successful Active and Independent Trading in U.S. Equities combined with equally extensive educational delivery skills. It is the progressive delivery and practical application of the correlative strategies discussed in our highly regarded Broad Market Analysis course, but rather than using static learning models, the live, real-time market becomes the canvas for learning under this program.